Forex is a robust form of investing that features no shortage of ways to turn a profit. A forex trend trade is one of the simplest, most popular methods which makes it great for beginners. Below, weâ€™ll walk you through the basics.
Find the Trend
Alright, this is probably a pretty obvious first step, but look at what it takes to actually find a trend. Obviously, if you donâ€™t do a good job with this initial step, you wonâ€™t be making any money.
Fortunately, there is a very easy way to do this: simply watch where the price on a currency pair is going. If itâ€™s going up, you have an upward trend. The opposite goes for a price thatâ€™s headed down.
In forex, youâ€™ll never see a straight line going in either direction. This is why proper analysis is so important. Instead, youâ€™ll see the pair shoot up and down, though a general trend should be noticeable. Forex charts also use â€œcandlesticksâ€ that show the open, close, low and high of a currency. They get their name because they have a â€œreal bodyâ€ which is a wider section and then â€œshadowsâ€ which are lines above and below that signify the highs and lows for the day; the general outline looks like a candlestick.
Learn candlesticks and how to read charts to ensure youâ€™re able to find trends quickly and effectively.
Plan an Entry
Once you have identified a forex trend, youâ€™ll need to plan how youâ€™ll enter to take a position. There are many ways you could do this, but for beginners, we recommend using whatâ€™s called a breakout.
Since an uptrend means that a certain currency pair will continue to hit higher highs and higher lows (provided it continues), you can plan your entry into the market as the increase in value continues.
The breakout works by a trader setting an entry point above the current value. If the price continues to go up â€“ as your trend predicted â€“ your software will automatically create the entry point. If the trend never breaks through to the point you desired, you can just delete the command with no money spent.
This is one of the best parts about forex trading. In short, you donâ€™t need to be in front of your computer to make good money. This is also why a forex trend trade is so great. As soon as youâ€™ve identified a trend, you can set an entry point and move on with your life.
Managing a Successful Exit
Now, itâ€™s also important to remember that forex trading doesnâ€™t come with any guarantees. Finding an entry point to execute your trend trade may seem easy, but it takes a lot of work to master and, like any form of investing, it comes with certain risks.
This is why you need to be smart about managing your exit from a trend trade too. The good news is that you can do it automatically, just like with your entry point. In forex talk, this would be your stop order. Youâ€™re picking a value where, if it went below, youâ€™d lose money.
Again, this probably seems to be easy enough, but managing your exit is like managing risk: a lot of people are confident it wonâ€™t be a problem, but then greed gets to them. When youâ€™re starting out with forex and trend trading, be smart. Take modest profits for now while you learn the ropes and youâ€™ll be better positioned in the future to make a lot more.
Now that you know how to perform a forex trend trade, start practicing. Although it may seem simple enough, the more you practice it, the more youâ€™ll see how much potential it has for profits.
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